Given the tough times that it faced last year with high rough prices, sluggish demand for polished, large inventory overhangs, tighter credit, liquidity issues, etc, the diamond industry, and particularly those in the middle of the value chain, are wary of what lies ahead.
Last week two important players in the diamond business gave an insight into how they see the future evoling. Both expressed the opinion that the industry stood at a crossroads, although they used the term in slightly varying contexts.
One of these was Phillipe Mellier, CEO of De Beers Group, the largest miner by value of rough diamonds. Speaking at a company event at Gaborone, Botswana, he said the industry had seen some improvement in the last few months, but "this is possibly the most crucial point as we now stand at a crossroads".
ABN AMRO, one of the key financiers of the global diamond industry, was the other. It released an Insights report on the diamond industry entitled "Nothing is forever.....". Looking at possible developments over the next few years, the report said, "The diamond industry is at a cross-road. There are strong forces that could lead to change."
Mellier clearly had his sights focused on the short run, even as the ABN AMRO team was looking at things from a slightly longer perspective.
The De Beers Group CEO spelt out some of the changes that the company was making in the near term. Without disclosing details, he said that there would be new multifunctional teams within the organisation each focused on certain areas of the business and specific clients. The company was aiming to "sharpen (its) focus on customer relationships and on product and service delivery..... so that agility and responsiveness is further hardwired into (its) activities."
This flexibility to adapt to the expected volatility given the uncertain macro-economic outlook, as well as help its clients to do the same, would be coupled with increased investments in non-proprietory marketing to boost diamond demand.
Mellier concluded on an optimistic note, saying, "We know that if we trust the sector's positive fundamentals, then we can usher in a bright new dawn for the world of diamonds."
The ABN AMRO report on the other hand identified two crucial factors that will have a lasting impact on the industry - price competition and the wider acceptance of lab-grown or synthetic diamonds. It also suggested that the value chain could get shortened over time.
Price would be important in the shorter term, the bank said, adding that "rough and polished prices may need to go a good deal lower" before any type of recovery could begin.
Over the longer term, the bank estimates that diamond mine production will decline by 1% annually over the next few years due to depletion of existing mines and failure to find new deposits. It says synthetic diamonds could help cover the demand-supply gap that may arise, and adds that while there are no clear forecasts on how synthetic diamond production will increase, it is clearly going to be at a high pace.
This "will lower the entry cost of the industry, increase the total (natural and synthetic) supply of diamonds, and will exert additional downward pressure on natural diamonds", the report concludes.
The bankers believe that some structural changes in the industry are inevitable, and that fighting the forces pointing towards change may make it "more substantial and painful ..... down the road". They suggest that the best strategy would be "to embrace them and recognise that bold adjustments need to be made".
Clearly a fifth C - change - is going to be very much a part of the industry's future both in the short run, as well as over a longer period of time.
Columnist
He has been a journalist since the mid-1980s, and has spent close to two decades tracking the gem and jewellery industry while holding different editorial positions in industry specific publications and websites
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